Four questions, many answers: What banks need to know about Silvergate

By Kate Berry

Silvergate Bank’s quick demise through a self-liquidation is prompting a closer look at the many red flags that ensnared the California bank even before the collapse of cryptocurrency exchange FTX late last year forced a run on deposits….Unlike most banks, Silvergate heavily relied on crypto-investor-funded deposits, which amounted to 82% of its deposit base as of late 2021. Given the warning signs, some industry experts say regulators could have seen the bank’s demise coming and acted sooner to prevent it.Karen Petrou, managing partner at Federal Financial Analytics, characterizes Silvergate’s downfall as a regulatory failure to prevent Silvergate from concentrating so much of its deposit base in one business line.”No bank failure is a regulatory success,” Petrou said. “Silvergate’s ‘voluntary’ liquidation is a failure and then some that could and should have been averted had the agencies taken action on funding-concentration risk and other blinking red lights going back at least a year on the bank’s balance sheet.”